Capital gains tax question here

[Ayo O.]

Hello BP,

I will be selling a house that use to be my primary residence from 2009-2015.I am being made to sell to a railway company through eminent domain.The house became a rental from 2015 till date.

I was wondering if the proceeds of the sale would still be capital gains exempt since I lived there for 2 out of the last 4.5 years regardless that it is now a rental property?

[Natalie Kolodij]

Originally posted by @Dennis Cosgrave:

At the time you converted the property from your personal residence to an income property you should have filed a change in use with the IRS which would have established the cost base at the time of the conversion. Any capital gain would be calculated on the difference between the cost base and the current market value. I have had no experience with the involuntary conversion rule so I would definitely seek advice from a tax accountant. 

 This is not true at all. 

You don't magically get a step up in basis because you converted to a rental. There's no form the IRS takes to do this. 

You need to tangibly SELL your primary to a corp to try to enact this type of situation and that's a fairly complex situation and recommend utilizing a tax pro to help.